Sales tax increase to help pay for capital bill kicks in Tuesday

Wednesday

Aug 26, 2009 at 12:01 AMAug 26, 2009 at 5:14 AM

Illinois shoppers will soon notice they are paying more for their favorite shampoo. Or toothpaste. Or candy bar. Or adult beverage. Sales tax changes approved by the Illinois General Assembly last spring to help pay for road improvements, school construction and other public works projects take effect Tuesday.

Doug Finke

Illinois shoppers will soon notice they are paying more for their favorite shampoo. Or toothpaste. Or candy bar. Or adult beverage.

Sales tax changes approved by the Illinois General Assembly last spring to help pay for road improvements, school construction and other public works projects take effect Tuesday.

That $10 box of chocolates that used to cost $10.10 with tax will now set you back $10.75, assuming you buy it inside the Springfield city limits, which has a 1.5 percent sales tax on top of the state rate.

That anti-dandruff shampoo used to be considered a medication that was only taxed at 1 percent. Now it will be taxed at the 6.25 percent state rate just like its herbal brethren. (And higher than that where local governments impose their own sales tax). Unless, of course, a doctor prescribes the shampoo, in which case it is still a medication.

Munch on a handful of plain, dry-roasted peanuts for a snack and you are eating food taxed at 1 percent. Buy the honey-roasted version and you are eating candy that is taxed at 6.25 percent at the state level. Yogurt-covered fruit? Candy. Yogurt-covered pretzels? Food.

Although the changes can sound confusing, the Illinois Department of Revenue, charged with collecting the sales taxes collected by retailers from their customers, thinks the changes will reduce confusion about what is taxed at what rate.

"This will clarify it for merchants," said Revenue spokeswoman Sue Hofer. "We believe this will reduce errors in classification of grooming products so that no matter where a customer goes to buy a tube of toothpaste they'll be charged the same."

Hofer said the department expects some retailers are stocking up now on supplies before the taxes increase. However, the department won't know for sure for several more weeks because of delays in collecting those taxes.

David Vite of the Illinois Retail Merchants Association agrees the changes will make things less difficult for retailers, up to a point.

"Certainly in two areas (soft drinks and grooming products) it will be easier. Candy is not going to be any easier," Vite said. "Anytime you have a system that taxes different products differently, there is confusion. This gets rid of a lot of problems for the retail industry."

The Illinois Petroleum Marketers Association represents 500 members who operate more than 3,500 gas station/convenience stores in the state. Executive vice president Bill Fleischli says the association will have to get used to the changes.

"It is confusing, but we have to work our way through this thing," Fleischli said. "We don't want down the line to have members subject to an audit and then be subject to penalty and fines."

The changes are intended to raise revenue that will be used to pay off the bonds issued for public works projects. It was part of the $31 billion capital bill approved by lawmakers last spring.

Extending the sales tax to candy is expected to raise $35 million to $38 million, Hofer said. Changes to tax rates for soft drinks and grooming products will raise an estimated $14 million.

Reaction among some Springfield retailers varied. Rob Flesher, president and co-owner of Pease's Candy Shops of Springfield, said the increase will "immediately cut into our sales."

"All of a sudden you're adding 6.75 percent to everything we sell," Flesher said. "In this economy people have only a limited amount of money for discretionary funds."

Flesher said Pease's products do not fall into any of the exceptions outlined in the new taxes.

Bill Caslin, co-owner and manager of Springfield Novelties and Gifts doesn't think the changes will be a big deal for his business, even though he sells soda, candy and personal care products.

"We do our best to be competitive," Caslin said. "In that regard, we hope to do our best not to pass it on. Some people are going to recognize there has been an increase, but I don't think it will be too drastic."

People shouldn't expect to skirt the tax changes by buying their candy bars in vending machines. Hofer said the tax applies to those products as well.

"Whoever owns the candy that goes into the machine pays the tax," Hofer said.

Not everything is seeing a tax increase, Hofer said. Seltzer water, previously taxed as a soft drink because it is carbonated, will now be taxed as a food because it contains no sweeteners.

Taxes on alcoholic beverages are also going up to help pay for the capital bill.

The state expects to collect another $109 million from excise taxes that are based on gallonage and alcohol content of a produce.

The tax increases amount to 81 cents on a fifth of liquor, 13 cents on a bottle of wine and 2.6 cents on a six-pack of beer, Hofer said.

However, Bill Olson, president of the Associated Beer Distributors of Illinois, cautioned that those numbers only apply to the increased taxes distributors will pay to the state.

"What we pay on taxes isn't the only factor," Olson said of beer prices. "We are getting an increase from breweries. Both of those go into the price we sell to the retailer. The retailer determines how much they will charge consumers."

Famous Liquors on Wabash Avenue in Jerome put up a sign advising people to buy now because taxes are increasing September 1. Manager Fred Manker said that warning hasn't prompted a big increase in business yet. But if the pattern repeats from 1999, when taxes were last increased, he said customers will start flowing in as the deadline approaches.

Manker said he's already been notified by distributors that prices will be going up.

Doug Finke can be reached at (217) 788-1527 or doug.finke@sj-r.com.

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